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Illinois school districts pressured by payment delay -Moody's

CHICAGO (Reuters) - Some Illinois school districts, including the Chicago Public Schools (CPS), are being squeezed by late payments due to the state’s ongoing budget problems, Moody’s Investors Service said on Thursday.

The credit rating agency said a handful of districts it rates “face increasing cash flow pressures or the potential for a material decline in reserves amid the continued delays,” creating a negative factor for their ratings.

The most vulnerable districts are heavily dependent on state grant funding, which is more than $1 billion in arrears, as well as districts with limited operating reserves, Moody’s said in a report.

Illinois is limping toward the June 30 end of its second-straight fiscal year without a complete budget due to an impasse between the state’s Republican governor and Democrats who control the legislature. Full funding for primary and secondary public schools was approved each year and districts have been receiving general state aid payments on time. However, grant money that covers items such as transportation and special education has been delayed by nearly nine months, according to Moody’s.

The most vulnerable districts are also among the lowest rated by Moody’s, including CPS, which is deep in the junk level at B3 with a negative outlook. A recent report by the Illinois State Board of Education indicated the nation’s third-largest public school system had only enough cash on hand on average this year to cover 12 days of expenses.

CPS has also drained its reserves and relied on short-term bank loans to deal with its own budget woes caused by escalating pension payments.

Other districts with low cash reserves cited in the Moody’s report were Will County Community High School District 210, which is rated Ba1 with a negative outlook, and High School District 200, rated Baa1.

CPS is awaiting a ruling due on Friday by a Cook County Circuit Court judge on its motion to temporarily halt how Illinois distributes money to schools. The district sued the state in February seeking to invalidate a funding system it contends discriminates against its largely black and Hispanic student body.

Illinois also faces a separate lawsuit filed by 17 districts outside of the Chicago area claiming inadequate funding.

Editing by Matthew Lewis